Revenue Acceleration Will Lift Senseonics

At a short interest of over 30%, Senseonics Holdings (NYSE:SENS) enjoyed a short-squeeze rally in early June. Since then, volume dried up. SENS stock does not have any positive catalysts on the way to send the stock flying higher again.

A woman wearing a continuous glucose monitor device holds a phone displaying a glucose monitor app.Source: Andrew_Popov / Shutterstock.com

Without any directions to move the stock, why should shareholders continue holding the stock?

SENS Stock Added to Index

On June 28, Senseonics joined the Russell 3000 index. Because it is widely followed by investment managers and exchange-traded funds, crowded buyers lifted the stock at the time. So, why are bears with a 29% short float so confident that the stock will drop back to the 35-cent low not seen since 2020?

Senseonics’ addition to the index gave the stock a one-time boost. Unless investors continue buying ETFs and funds that follow the index, SENS stock will not benefit from buying demand. Still, as long as indexes hold SENS, minimal selling pressure will prevent the stock from falling by much.

On June 3, Senseonics announced the results of the Promise study. It demonstrated strong accuracy of the 180-day Eversense continuous glucose monitoring (or CGM) system. For the primary sensor of over 49,000 paired points, SENS reported an overall mean absolute relative difference against the reference value of 9.1%. The SBA sensor had an 8.5% MARD value on over 12,000 paired points.

Senseonics did not report any serious adverse events. Just more than 1% of patients had a mild infection at the procedure site.

Dr. Satish Garg, the principal investigator, said, “The accuracy profile demonstrated by Eversense in the PROMISE Study validates the role that long-term implantable CGM systems can play in helping people manage their glucose levels.”

Senseonics is waiting to hear from the U.S. and European regulatory agencies for its pre-market submissions of data. Any good news from the agencies is potential catalysts for the ailing stock.

While it waits, SENS will continue to offer the Eversense CGM systems through its commercialization partner, Ascensia Diabetes Care. Since Senseonics’ Eversense is more accurate than DexCom (NASDAQ:DXCM) or Medtronics, shareholders should not expect any bad news.

Opportunity and Risks

SENS is not getting any analyst coverage. Analysts last rated the stock three months ago (per Tipranks). The company only needs to raise its outlook to re-ignite investor interest. In the first quarter, Senseonics reported a decrease in operating losses, to $32.52 million. The company highlighted a $50 million cash raise through an equity offering. For 2021, it reiterated a global net revenue forecast in the range of $12 million to $15 million.

SENS ended the quarter with $215 million in cash and cash equivalents in the second quarter. At first glance, this would reduce the risk. It has enough cash to cover expenses and is unlikely to issue more shares. Conversely, the company reported a $249.51 million loss, or 68 cents a share.

Chief Financial Officer Nick Tressler said that SENS worked through most of the inventory that it wrote down last year. In the second quarter and for the second half of the year, he expected a gross margin of -25% to -35% for the full year. Net revenue for the year will be between $12 million and $15 million. As it expands its relations with existing prescribers, SENS may re-establish its strength one territory at a time. This may involve hiring more sales representatives to increase product awareness with prescribers.

The U.S. lifting restrictions is another tailwind. Sales staff may have in-office visits and training. The company did not forecast new sales momentum offsetting last year’s write-down. Also, it began the preparatory investments to increase capacity. Once it gets its sales team efforts at a full schedule, it may ramp up sales. For now, investors should not expect a positive operating margin until next year at the earliest.

Your Takeaway

Investors looking for exposure in the health care equipment space should consider a small, speculative position in SENS stock. The company worked through inventory issues last year and is increasing its promotional sales efforts from here. This will lead to improving margins over the longer term.

SENS stock is not without risk. The company is centering its efforts on research and development, manufacturing, and clinical and regulatory activities. Those are near-term costs. In addition, as it commercializes Eversense, its partner, Ascensia is ready to distribute the product globally.

When that happens, the revenue will come.

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On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.